*by Johannes Fiala, lawyer (Munich), M.B.A. (Univ.Wales), (www.fiala.de) and Diplom-Kaufmann (Univ.) Edmund J. Ranosch, financial analyst (Wöllstadt)
Over-indebtedness and occupational pension schemes: Pursuant to section 19 para. 2 InsO, over-indebtedness exists if the debtor’s assets do not cover the existing liabilities. The decisive factor is that this cannot be read directly from either the commercial or the tax balance sheet. For example, hidden reserves must be released for the valuation. In the case of the assets, i.e. the asset items, deductions are regularly made in the current assets. Discounts of 50 % and sometimes more are conceivable for work in progress. Discounts of between 20-50 % are applied to finished goods. over-aged stock is subject to higher markdowns (50%), while marketable items are subject to lower markdowns (20%). Discounts in the range of 20 to 80% are applied to trade receivables. A discount of 80 % applies in particular to receivables that have been due for a long time (e.g. for 6 months or more).
And the debt from a PZ:
These liabilities can be found under provisions for obligations from pension commitments. The obligation results from the amount of the present value of the promised retirement pension benefits, e.g. for a 54-year-old GGF. The commitment of a constant monthly retirement pension of ? 3,000 from the age of 65 triggers a retirement pension present value of ? 353,642 according to the Heubeck mortality tables. This amount is to be available as a capital stock at the start of the pension in order to be able to service the monthly pensions for the pension recipient (GGF) with simultaneous interest on the respective remaining capital at 6 % p.a.. However, this does not guarantee the monthly pension for life, but only for the remaining life expectancy of a 65-year-old of 15.28 years according to the mortality table 1997/1999 (processed in the Heubeck mortality tables). If the retired GGF lives longer, it meets the fate to stand there without further age pension. Therefore, there are obviously two problems to be solved. Firstly, a higher capital stock will have to be accumulated with the progressive increase in the remaining life expectancy and, secondly, for further precautionary reasons, an interest rate of 6% p.a. on the capital stock sinking in each case after a pension payment cannot be expected in the long term, but rather 3% p.a. . Both real scenarios lead to the fact that at 3 % p.a. interest and under today’s mortality table 2004 R, a remaining life span of a 65 year old of 16.07 years is to be calculated. In order to achieve the constant monthly pension of 3,000 ? to be able to pay for at least this period, the company needs a capital stock of 449.000 ?. This means that today’s provisions are already set almost 30 % too low and the imponderables of the long-term interest rate, which the Heubeck mortality tables still take into account at 6 % p.a., are enormous. Not to mention the as yet unforeseeable development of remaining life expectancy, because we all want to live to 100 with the support of medical progress. The capital requirement expands even more if the old-age pension is adjusted to inflationary developments at, say, 2%. Under the aforementioned conditions, a capital stock of approx. 538,000 ? would already be necessary for ?pension payment? from today’s point of view. But the GGF still does not have a lifelong pension beyond the 16.07 years. Only approx. 65% of the pension would be covered by capital only. The curve to the over-indebtedness situation is easily taken. In view of these orders of magnitude for only one person in the provision area, the balance sheet over-indebtedness situation is easily reached with a provision development that has existed for years with constantly increasing allocations up to the retirement pension cash value. Particularly then, if no reinsurance positions on the asset side of the balance sheet counterbalance and/or the asset values experience further due reductions. The GGF with a pension promise without reinsurance means must let itself as well as ask, from where the GmbH is to take the means for the annuity payments, because the reserves reduce its profit and it was once thought out as basic principle of the reserve formation that the tax savings resulting from it should be accumulated beautifully bravily on the assets side interest-moderately, in order to finance later from it the pensions to the GGF. In the above example of the constant old-age pension, this could only be realised if the company tax savings of around 40% (today) could have been invested until the pension payment at around 14.45% up to the age of 65. The 353,642 saved in this way would be ? would still be too short. One needs much more target-capital while this moves away like a mirage again and again… The debts (provisions) are in the (tax) balance sheet. While according to Heubeck the pension values are still discounted at 6%, this should actually only be done at 2 to 3% p.a. and would lead to higher retirement pension cash values than are currently shown. 30% higher reserves or higher capital stock is only the lower limit. It can also be 50 % and This can no longer be the case if the pensions are dynamic or if a pension increase in the vesting phase expands the pension commitment or the liability item “pension provisions”. The pension debt item is regularly set much too low. As a result, only a few entrepreneurs can even estimate whether and when over-indebtedness exists. However, the insolvency administrator establishes this later and accuses the GGF of, among other things, “too high withdrawals” or “filing for insolvency too late”. The insolvency administrator will take action against the GGF.
Eliminate commitment: It is only very difficult to eliminate the commitment under employment law, namely in particular in the case of breaches of fiduciary duty with considerable incalculable damage in the individual case (BAG judgement of 11.05.1982, ref. 3 AZR 1239/79). So let us assume for the sake of simplicity that the insolvency administrator has not yet pulled this “card”. Reinsurance is drawn by the insolvency administrator to the insolvency estate: The Regional Court of Erfurt ruled in favour of an insolvency administrator who had successfully held the GGF liable (by default judgment). The insurance company subsequently defended itself against the payment of the reinsurance to the insolvency estate as compensation for damages and lost the case (judgement of 04.12.2003). Alternative of the insolvency administrator: The insolvency administrator could possibly have spared himself the lawsuit against the GGF. In principle, it would have been sufficient if he had set off the GmbH’s claim for damages against the employment law commitment, §§ 387 ff BGB. The first legal consequence is that the claims of the GGF arising from the commitment lapse. The second legal consequence is that the lien ceases to exist, because without a principal claim (from the commitment) there is no longer a lien (called accessoriness). This is comparable to a guarantee: If the main claim of the bank ceases to exist, the (accessory) guarantee has also ceased to exist ? it is therefore no longer applicable. Third legal consequence: The GmbH, represented by the insolvency administrator, can cancel and terminate the insurance, i.e. draw on the assets.
Attachment protection instead of insolvency stability: What the LG Erfurt did not even discuss here is the question of whether the GGF should not at least be allowed to retain the attachment-free subsistence minimum? According to §§ 850 ZPO this is 940 Euro (minus 1 cent) for a single person. Distinction from the BGH ruling of 7 April 2005 (Case No. IX ZR 138/04): The BGH had dealt with a completely different case, the conceivable preliminary stage of offsetting, so to speak. However, with catastrophic economic consequences, such as the loss of occupational disability and death cover, the conceivable deduction of cancellation costs, etc. In the normal case before the pledge matures (if the claim from the commitment is not yet due), the insurer can only make joint payments to the insured party (usually the GmbH, the employer) and the employee (e.g. GGF) after the pledge. In the case of insolvency, before the pledge has matured, the BGH is of the opinion that the situation is different: the GmbH can collect the reinsurance on its own through the insolvency administrator (BGH of 7.4.2005). This also applies in principle to reinsurance from working time accounts. After the lien maturity is before the lien maturity: What is now easily overlooked, is that the lien maturity in a (for tax reduction) installment pension payment or installment payment from the time value account, only in each case, for example, month by month occurs. So there is often a bigger chunk of assets left without a pledge maturity ? and that can be withdrawn then naturally after BGH judgement of 7.4.2005 anyway first times. Normally, after the pledge has matured, the insurer can only make payments to the beneficiary (e.g. the GGF).
But if you talk to the legal departments of various insurers, you will learn confidentially from practical experience that the insurance company will always stick to the limited liability company in case of doubt, or if there is a dispute as to who is entitled to the money, the insurer will not risk having to pay twice. Therefore, in case of doubt, the insurer will deposit the money in court. Then the insolvency administrator and the (former) GGF can argue about the money for years.
GAU for the intermediary and financial planner:
Now imagine the agent or financial planner to whom the GGF now comes and says he would (currently) be empty-handed ? neither the legal costs nor the duration of the process and the risk of litigation are in the financial planning or insurance advice. With such gaps in planning or advice, where will the GGF then want to collect his pension ?for the time being?
Unsafe pledging model: If the pledging model is still safe, intermediaries ask the insurer. The answer is then correctly that a temporal bringing forward of the maturity of the pledge, i.e. of the due date, would have to be considered. But this does not work, because the prerequisite for the pension commitment is that the pension entitlement is due at retirement age. According to insurance lawyers, deviating regulations would be ineffective.
Insolvency Protection Reorganization:
Who this result does not taste, it does not help also in the advertisement to write ?? the lien in the life work time model and the pension promise is bombproof in the case of insolvency ? Bombig is at most the adhesion from incomplete ? with the product sales permitted ? if also unfortunately incorrect legal advice and/or selling advertisement. The financial service provider does well to check the contracts carefully and to distrust all too full-bodied promises about insolvency strength. Finally the first financial service providers are already on the way and cover the complete ?reinsurance? around: Specifically, the reinsurance is spun off from the company. If the insolvency administrator can just get to the assets of the company (as the insured party) as easily as possible, then the assets of the old-age provision may simply have to disappear there again. The whole thing can be arranged legally and, if possible, tax-free. The customer must decide here, depending on risk capacity and comfort.
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About the author
PhD, MBA, MM
Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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